Over the past two months, while oil markets have declined, global VLSFO prices have held onto their gains more tenaciously than crude, leaving the dominant bunker grade’s premium to Brent at or near record levels as reported by Ship&Bunker.
Impending recession
Brent crude futures have slumped over the past two months as warnings of impending recession outweigh concerns over supply prospects, and on Thursday intraday prices dipped below levels seen before Russia’s invasion of Ukraine on February 24.
But VLSFO has outperformed global crude markets.
VLSFO’s strength is coming off the back of red-hot middle distillate markets, which have also outperformed crude as refiners struggle to replace Russian exports.
Distillate blending components are a key element of VLSFO.
ICE Gasoil’s premium to Brent stood at $349.03/mt on Thursday, compared with an average this year of $233.08/mt.
Uncertain Demand
However, despite slightly conflicting signals from bunker demand, VLSFO is continuing to gain strength. Singapore’s first-half sales decreased by 9.3% year over year, and they reached their lowest level since the first half of 2015. In comparison to the same period last year, Fujairah’s bunker volumes increased by 2.5% from January to May. Sales in Panama from January to May increased 3.5% from the same period last year.
The demand was 2.6% lower in the first quarter of 2018 compared to the same period in 2021, according to a first-quarter volume survey by Ship & Bunker and BLUE Insight of 17 major bunkering sites.
Although some regions, such as Algeciras, Zhoushan, and Hong Kong, have experienced robust demand this year, it is still unclear whether these gains will be able to counteract the general downturn.
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Source: Ship&Bunker
